[Federal Register Volume 68, Number 194 (Tuesday, October 7, 2003)]
[Notices]
[Pages 57943-57945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25339]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48577; File No. SR-Amex-2003-80]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to a Pilot Program for Marketing Fee Procedures

September 30, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 24, 2003, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which the Exchange has prepared. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt Commentary .11 to Amex Rule 958 
specifying the procedures by which specialists and registered options 
traders (``ROTs'') may determine whether to continue to participate in 
the marketing fee program recently established by the Exchange. The 
Exchange proposes to institute these procedures on a six-month pilot 
basis. The text of the proposed rule change is below. Proposed new 
language is italicized.
* * * * *
Rule 958. Options Transactions of Registered Traders
    (a) through (h) No Change
Commentary
    .01 through .10 No Change
    .11 Marketing Fee Program Voting Procedures. The following 
procedures specify how a specialist and Registered Trader determine 
whether to participate or not to participate in the Exchange's 
marketing fee program. These procedures will expire six (6) months from 
the date of effectiveness unless extended, or adopted on a permanent 
basis.
    (a) Eligible Voters
    (i) Eligible Registered Traders. For option classes traded by an 
individual specialist, Registered Traders to be eligible to participate 
in the vote must have transacted at least 80% of their contracts and 
transactions in each of the three immediately preceding calendar months 
in one or more option classes traded by that specialist. For cases when 
one specialist trades a single option class or multiple specialists 
trade a single option class, Registered Traders to be eligible to 
participate in the vote must have transacted at least 80% of their 
contracts and transactions in each of the three immediately preceding 
calendar months in that option class. Registered Traders are required 
to continue to trade the particular option class at the time of the 
vote. Eligible Registered Traders and the specialist shall each have 
one vote.
    (b) Requesting a Vote. After the marketing fee initially has been 
in effect for three consecutive calendar months with respect to the 
option classes of an individual specialist, any eligible Registered 
Trader and specialist can request that a vote be held to determine 
whether or not the Registered Trader and specialist should continue to 
participate in the marketing fee program by submitting a written 
request to that effect to the Secretary of the Exchange. The Exchange 
shall post a notice of the time and date of any vote to be taken at 
least 10 calendar days prior to the time of the vote. The Marketing Fee 
Program Committee shall determine all other administrative procedures 
pertaining to the vote.
    (c) Participation in the Marketing Fee Program. The Registered 
Traders and specialist shall be deemed to have indicated that they 
desire to participate in the Exchange's marketing fee program if a 
majority of those eligible Registered Traders participate in the vote 
and if a majority of the total votes cast are in favor of participating 
in the marketing fee program. Conversely, the eligible Registered 
Traders and the specialist shall be deemed to have indicated that they 
do not desire to participate in the Exchange's marketing fee program if 
a majority of those eligible Registered Traders participate in the vote 
and if a majority of the total votes cast are against participating in 
the marketing fee program.
    (i) Frequency of Vote. Once eligible Registered Traders and the 
specialist vote to participate in the marketing fee program, subsequent 
votes to determine whether to continue participation may be held only 
once every three calendar months. Once eligible Registered Traders and 
the specialist vote not to participate in the marketing fee program, 
subsequent votes to determine whether to participate in the marketing

[[Page 57944]]

fee program may be held only once every thirty days.
    (ii) Tie Votes. If a vote conducted in accordance with this 
Commentary results in a tie, the status quo for the specialist and 
Registered Traders of the particular option class shall remain in 
effect. Accordingly, if the specialist and Registered Traders currently 
participate in the marketing fee program and a tie vote occurs, the 
marketing fee program will remain in effect for that specialist and 
Registered Traders. If the specialist and Registered Traders do not 
participate in the marketing fee at the time the tie vote occurs, the 
marketing fee will not be implemented for the specialist and Registered 
Traders at that time.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In July 2000, the Amex imposed a marketing fee of $0.40 per 
contract on the transactions of specialists and Registered Options 
Traders (``ROTs'') in individual equity options. The Exchange collected 
the fees and distributed the funds to the specialists, who then used 
the funds to pay broker-dealers for orders they directed to the Amex. 
In August 2001, the Exchange suspended the collection of the fee. In 
June 2003, the Amex re-instated an equity option marketing fee on those 
specialist and ROT transactions resulting from orders from customers of 
payment accepting firms with whom the specialist has negotiated a 
payment for order flow arrangement.\3\
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    \3\ See Securities Exchange Act Release No. 48053 (June 17, 
2003), 68 FR 37880 (June 25, 2003) (SR-Amex-2003-50).
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    In conjunction with the re-instatement of the marketing fee 
program, the Amex now proposes to adopt Commentary .11 to Amex Rule 958 
for the purpose of establishing procedures for specialists and ROTs to 
determine whether to continue participation in the Exchange's marketing 
fee program. The Amex proposes to institute their procedures on a six-
month pilot basis. In connection with the adoption of the procedures 
included in new Commentary .11 to Amex Rule 958, the Amex would 
establish a Marketing Fee Program Committee (``Committee'') to 
determine and administer the procedures for conducting the required 
vote. The Committee would be comprised of the Amex's Vice Chairman, two 
options specialists designated by the Chairman of the Specialists' 
Association and two ROTs designated by the Chairman of the Options 
Market Maker Association.
    The proposed new Commentary .11 to Amex Rule 958 would identify 
which ROTs are eligible to vote for particular option classes. In 
connection with a required vote, the specialist and each eligible ROT 
would be entitled to one vote. Any decision to discontinue 
participation in the Amex's marketing fee program would be on a 
specialist-by-specialist basis, unless more than one specialist trades 
a single option class, in which case, the determination would be made 
on an option-class basis.\4\ ROTs may choose to trade one or all of the 
option classes traded by a specialist.
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    \4\ The Amex notes that most specialists trade two or more 
option classes, some specialists trade only one active option class, 
and some actively traded option classes have two or more 
specialists.
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    The proposed voting procedures provide that a ROT would be eligible 
to vote on continued participation in the marketing fee program with 
respect to the option classes traded by an individual specialist 
provided that the ROT has at least 80% of its registered trader 
activity in each of the three immediately preceding calendar months 
(measured in terms of both contract volume and transactions) in one or 
more of the options traded by that specialist.\5\ When one specialist 
trades a single option class or multiple specialists trade a single 
option class, ROTs would need to have at least 80% of their registered 
trader activity in each of the three immediately preceding calendar 
months (measured in terms of both contract volume and transactions) in 
that option class to be eligible to vote on whether to continue with 
the marketing fee program. In addition, the ROT would need to continue 
to trade the option class or classes at the time of the vote. The 
Exchange believes that these requirements assure that only those ROTs 
who have concentrated their activity in one or more option classes 
traded by a specialist over the last three months would be eligible to 
participate in the vote.
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    \5\ The Amex notes that this 80% trading activity requirement 
pertains to the trading activity of an individual ROT, and not to 
the aggregate trading activities of any group of ROTs. Telephone 
conversation between Jeffrey P. Burns, Associate General Counsel, 
Amex, and Ian K. Patel, Attorney, Division of Market Regulation, 
Commission, on September 26, 2003.
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    Process to Request a Vote. After the program has been in effect for 
the initial three calendar month period, the specialist or any eligible 
ROT could request that a vote be held by submitting a written request 
to the Secretary of the Exchange. The Amex would provide at least 10 
calendar days' posted notice to the specialist and other ROTs of the 
time and date of the vote. The Exchange would verify that the member 
requesting a vote is an eligible ROT and would keep the identity of 
such individual confidential.
    Specialist and ROTs Participating in the Marketing Fee Program. The 
specialist and ROTs could cease to participate in the marketing fee 
program after the initial three-month period has expired. In order to 
opt out of the marketing fee program, the following actions must occur: 
(i) The question must be presented for a vote of the specialist \6\ and 
eligible ROTs; (ii) a majority of the eligible ROTs must participate in 
the vote; and (iii) a majority of the votes cast must be in favor of 
not continuing to participate in the marketing fee program. In the 
event that the vote is tied, the marketing fee program would remain in 
effect in those option classes for the next three consecutive months.
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    \6\ The specialist may (but is not required to) participate in 
the vote.
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    Specialist and ROTs Not Participating in the Marketing Fee Program. 
The proposed voting procedure set forth in Commentary .11 provides that 
twenty days after the specialist and eligible ROTs vote to discontinue 
participation in the marketing fee program, the specialist and any 
eligible ROT may request that another vote be held to determine whether 
the trading crowd should again participate in the marketing fee 
program.\7\ In this case, if a majority of the votes cast are in favor 
of again participating in the marketing fee program, the program would 
be in effect in those option classes for the next three consecutive 
months. In the event that the vote is tied, the specialist and ROTs 
would be deemed to have indicated that they do not wish to

[[Page 57945]]

participate in the marketing fee program.
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    \7\ The Exchange notes that actual votes may only be held once 
every thirty days. Because there is a ten-calendar day notice period 
prior to a vote, however, the specialist and any eligible ROT may 
request a vote twenty days after the preceding vote.
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    If a payment-accepting firm were to materially change its execution 
status or a specialist transfers its options classes to a separate 
organization, any eligible ROT could request that a vote be held 
pursuant to procedures set forth above to determine whether those 
option classes should continue to participate in the marketing fee 
program.
2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
section 6(b) of the Act \8\ in general and furthers the objectives of 
section 6(b)(5) of the Act \9\ in particular in that it is designed to 
promote just and equitable principles of trade and to remove 
impediments to and perfect the mechanisms of a free and open market.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    The Amex neither solicited nor received written comments with 
respect to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become immediately effective pursuant 
to section 19(b)(3)(A)(iii)\10\ of the Act and Rule 19b-4(f)(6)\11\ 
under the Act because it effects a change that: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) by its terms, does not become operative for 30 days after the 
date of the filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest. The Amex has given the Commission written notice of its 
intent to file the proposed rule change, along with a brief description 
and text of the proposed rule change, at least five business days prior 
to the date of filing of the proposed rule change.
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    \10\ 15 U.S.C. Section 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the usual pre-
operative waiting period, so that it may immediately begin implementing 
the proposed procedures in connection with the marketing fee program. 
The Exchange notes that acceleration of the operative date of the 
proposed rule is appropriate, given that substantially similar 
procedures have been adopted by the Chicago Board Options Exchange, 
Inc. (``CBOE'') and approved by the Commission.\12\
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    \12\ See Securities Exchange Act Release No. 47957 (May 30, 
2003), 68 FR 35035 (June 11, 2003) (SR-CBOE-2003-20).
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    The Commission believes that it is consistent with the protection 
of investors and the public interest to accelerate the operative date 
of the proposal.\13\ The Commission notes that it has approved a 
substantially similar proposal filed by the CBOE. For this reason, the 
Commission designates that the proposal become operative immediately. 
At any time within sixty days after the filing of the proposed rule 
change, the Commission may summarily abrogate this rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \13\ For purposes of accelerating the operative date of the 
proposed rule, the Commission notes that it has also considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to file number SR-Amex-2003-80 and 
should be submitted by October 28, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25339 Filed 10-6-03; 8:45 am]
BILLING CODE 8010-01-P